Terry Bitcoin was born in 2009 and was first confined to a small circle of geeks. After users outside of the code-breaking users outside of the cryptocurrency community began to become familiar with Bitcoin, it won the approval of many veterans of the electronic currency industry. But no one thought it could be used to exchange for real-world currency. The early players were basically In the spirit of sharing the community of open source software projects, they invested in computing power to keep the Bitcoin community running.
The special events to watch for in Bitcoin prices are as follows.
- The point in time when production halves every 4 years. The future price is bullish.
- Brief panic triggered by the blockchain fork event. The future price is bearish.
- Bursting of the price bubble. The future price is bearish.
- Massive global media coverage in a short period of time. The future price is bearish.
The roller coaster of bitcoin price growth in the long term and up and down in the short term has surprised many people. Those who took advantage of the opportunity are cheering, while those who bought at the high point are regretting that they didn’t seize the moment; miners who got the first batch of integrated are enjoying high earnings; while those who booked futures miners will probably not be able to recover their costs, after the concentration of chips.
Miners and bitcoin speculators and investors alike will be thinking about the following questions: What is a reasonable price for bitcoin? Where is the support system for its price? Can a stable price be formed in the end? If not, how can it become a currency that acts as a general equivalent?
We usually use the cost of mining new Bitcoin coins to measure the reasonableness of the price. Based on the depreciation of the miner’s investment, as well as the cost of mining electricity and labor, combined with the expected development of network-wide computing power (mining difficulty), we can roughly estimate the production cost of each new coin.
Of course, this cost is constantly changing: on the one hand, as mining hardware technology improves, the production cost and energy consumption per unit of computing power is decreasing; on the other hand, as mining equipment increases, the amount of bitcoins that can be mined per unit of computing power is gradually decreasing.
Overall, the cost of mining new bitcoins is rising rapidly. In fact, all prices of virtual currencies are psychological. The costing has some basis, but the actual rise and fall is a combination of cost and market information. Since new coins account for a relatively small portion of the total (the number of new coins generated each day is insignificant compared to the total number in circulation and the daily trading volume of around 1 million BTC), the production cost is more symbolic in terms of the price support.
In the short to medium term, good and bad news has a much greater impact on the psychological expectations of bitcoin holders than the cost of production, which in turn has a greater impact on the price.
Every spike and fall happens when there is a hot event, a news media push, and a huge influx of newbies. The consequences of currency devaluation in silence with a constant amount of money in the context of global currency devaluation and serious inflationary expectations, you can imagine how tempting it is for the general public.
With the support of various favorable conditions, the irrational impulse of the unconscious group pushed the price bubble all the way up. When prices soar to a certain height, there will inevitably be a large single selling situation, the bubble thus burst, any piece of negative news may become the fuse of the crash.
Let’s make a brief summary. Bitcoin volatility is driven by many factors, including:
1. Supply and demand:
The supply of Bitcoin and the demand for it in the market, like most commodities, assets, investments or other products, the price of Bitcoin is largely determined by supply and demand.
Supply: Bitcoins may be limited in number (21 million) and are expected to be mined out by 2140. In addition, availability fluctuates based on how quickly they enter the market.
The supply of an asset plays a crucial role in determining its price. Scarce assets are more likely to be priced high, while assets that are available in abundance have low prices.
Demand: The market value of Bitcoin is mainly affected by the number of coins in circulation and the amount people are willing to pay. As the most popular cryptocurrency, Bitcoin demand has increased because supply has become increasingly limited. Long-term, wealthier investors hold their bitcoins to prevent those with less assets from gaining exposure.
2. Competition
Although Bitcoin is the most famous cryptocurrency, hundreds of other cryptocurrencies are competing for investment funds. As of 2022, Bitcoin dominates trading in the cryptocurrency market. But its dominance has diminished over time.
3. Regulation
Bitcoin is currently not regulated by governments and central banks. There are questions about how that might change over the next few years and what impact that might have on its value.
4. News
Prices may be affected by public perception, safety and longevity.
5. Adoption
Not yet widely adopted by businesses or consumers as a payment method. However, some see the potential of blockchain technology and believe it may see wider adoption in the future.
Many people also believe that price spikes and drops are an inevitable part of bitcoin’s development, and that each bubble burst is an opportunity for bitcoin veterans to gain from newcomers who don’t yet understand the mechanics of price formation. For newcomers, this is an expensive tuition fee. But as bitcoin becomes more widely accepted and better understood by society, its ups and downs are likely to shrink.
The more bitcoin matures, the more robust its price will be. Whether it’s chip development or mining, there will be a reasonable rate of return. The rate of return for high threshold jobs will be relatively high, but it’s no longer comparable to the exaggerated multiples of returns of earlier years. The process of Bitcoin gradually going to the public is the process of Bitcoin gradually decentralizing and the price gradually smoothing out.
